Financial metrics clause: Copy, customize, and use instantly
Introduction
A financial metrics clause sets out how key financial indicators—such as revenue, gross margin, EBITDA, or net income—will be measured, reported, and used under the agreement. It ensures transparency, alignment on financial performance expectations, and a clear basis for monitoring obligations, pricing adjustments, performance triggers, or bonuses. This clause is especially useful in revenue-sharing, licensing, earnout, or incentive-based agreements.
Below are templates for financial metrics clauses tailored to different scenarios. Copy, customize, and insert them into your agreement.
Standard financial reporting clause
This version requires regular reporting of agreed financial metrics in a defined format and frequency.
The reporting party shall provide quarterly financial statements to the other party, including revenue, gross margin, operating expenses, and EBITDA, no later than 30 days after the end of each fiscal quarter. All financial data shall be prepared in accordance with generally accepted accounting principles (GAAP).
Clause with performance-based financial thresholds
This version ties obligations or benefits to specific financial performance milestones.
If [Party A]'s net revenue for any calendar year exceeds $[X], an additional payment of $[Y] shall be due to [Party B] within 30 days of year-end. Financial thresholds shall be calculated based on audited statements and reviewed jointly by both parties.
Clause with audit rights linked to financial metrics
This variation links financial metrics to audit and verification rights.
The receiving party shall have the right to audit the reporting party’s financial records once per year to verify the accuracy of reported metrics, including revenue, cost of goods sold, and net income. Any discrepancies of more than 5% shall be subject to correction and reimbursement within 15 days.
Clause with metric adjustment for extraordinary events
This version allows financial metrics to be normalized or adjusted for one-off events.
If a material extraordinary event occurs (including force majeure, asset write-offs, or restructuring costs), the parties agree to adjust the relevant financial metrics by mutual agreement to maintain consistency in performance evaluation under this agreement.
Clause with rolling average calculation
Uses a rolling average to smooth fluctuations in financial reporting.
Financial metrics shall be calculated based on a rolling 12-month average to ensure consistency in performance evaluation. The rolling average shall apply to revenue, gross margin, and EBITDA calculations and be updated quarterly.
Clause linking compensation to gross margin
Ties compensation or pricing to a specific financial metric.
[Party B] shall receive a variable service fee equal to 2% of gross margin realized by [Party A] during each calendar quarter, based on unaudited financial statements submitted within 20 days of quarter-end.
Clause with monthly revenue certification
Requires certified revenue reporting on a monthly basis.
[Party A] shall provide a certified statement of monthly revenue within 10 business days of each month-end, signed by an authorized financial officer.
Clause with benchmark comparison
Compares reported financials against industry benchmarks.
Reported financial metrics shall be compared against [Industry Benchmark Source] quarterly. If revenue or EBITDA falls below 75% of the benchmark, both parties shall meet to assess potential corrective actions.
Clause defining EBITDA calculation method
Clarifies what inclusions and exclusions apply.
EBITDA shall be calculated as earnings before interest, taxes, depreciation, and amortization, excluding one-time charges, unrealized gains/losses, and non-operating income unless otherwise agreed in writing.
Clause with inflation-adjusted thresholds
Adjusts thresholds annually for inflation.
All revenue and profitability targets under this agreement shall be adjusted annually based on the Consumer Price Index (CPI) to account for inflation.
Clause with early warning triggers
Introduces financial metric-based alerts.
If revenue drops by more than 20% quarter-over-quarter or if gross margin falls below 25%, the reporting party must notify the other party within five business days and provide a recovery plan.
Clause with quarterly forecasting obligation
Adds forward-looking projections.
[Party A] shall provide a financial forecast for the next two quarters, including projected revenue, gross margin, and net income, within 15 days of each quarter-end.
Clause with performance bonus tied to financial targets
Links bonuses to financial results.
If annual EBITDA exceeds $[X], [Party B] shall be entitled to a performance bonus of $[Y], payable within 30 days of the fiscal year-end.
Clause with year-over-year growth requirement
Sets expectations for financial growth.
[Party A] agrees to maintain a minimum year-over-year revenue growth rate of 10%. If this threshold is not met, the parties will convene to reassess service terms and pricing.
Clause with scenario-based adjustments
Introduces alternate metrics under specific conditions.
If the business undergoes a major acquisition or divestiture, financial metrics used in this agreement shall be replaced with normalized run-rate revenue and adjusted EBITDA for evaluation purposes.
Clause with time-based metric review
Scheduled financial metric review points.
The parties shall review all financial metric targets annually on the agreement anniversary date to assess whether adjustments are necessary based on market conditions or internal performance.
Clause with currency conversion guidance
Clarifies treatment of multi-currency metrics.
Where revenue is earned in multiple currencies, financial metrics shall be reported in USD using the exchange rate published by [Source] on the last business day of each quarter.
Clause with financial covenant breach trigger
Creates consequences for poor financial performance.
If [Party A] reports negative net income for two consecutive quarters, [Party B] shall have the right to suspend obligations under this agreement until financial recovery is demonstrated.
Clause with tiered pricing based on revenue bands
Links pricing to revenue performance.
Pricing shall be adjusted annually based on the following revenue bands: [Band 1: <$1M = Rate A; Band 2: $1M–$5M = Rate B; Band 3: >$5M = Rate C]. The applicable tier shall be determined based on audited revenue reports.
Clause with minimum profit margin maintenance
Requires a baseline profit margin to remain in effect.
[Party A] shall maintain a minimum net profit margin of 10%. Failure to do so for two consecutive quarters shall trigger a joint financial review.
Clause with third-party financial review option
Allows external verification on request.
Either party may request a third-party financial review once per year, to verify reported financial metrics, at its own cost, provided reasonable notice is given.
Clause with quarterly profitability ratio requirement
Adds ratio-based performance standards.
[Party A] shall maintain a quarterly return on assets (ROA) ratio of at least 6%. If this ratio falls below target for two consecutive quarters, the parties shall discuss a corrective plan.
Clause with real-time financial dashboard access
Provides continuous visibility.
[Party A] shall grant [Party B] read-only access to a real-time financial dashboard displaying key metrics including revenue, expenses, and operating margin.
Clause with deferred payment tied to financial outcome
Delays payment based on future metrics.
A portion of [Party B]’s compensation ($[X]) shall be deferred and payable only if [Party A] achieves an EBITDA margin of at least 20% for the fiscal year.
Clause with metric reconciliation timeline
Requires prompt review and reconciliation.
Any disputes regarding financial metrics must be raised within 30 days of receipt. The parties shall then reconcile discrepancies within 15 business days.
Clause with quarterly breakeven analysis
Tracks break-even status regularly.
[Party A] shall provide a quarterly break-even analysis including fixed costs, variable costs, and contribution margin calculations.
Clause with cost-efficiency ratio tracking
Focuses on cost control metrics.
[Party A] shall maintain a cost-efficiency ratio not exceeding 0.75 (total operating costs divided by total revenue), reported quarterly.
Clause with financial variance threshold
Sets a tolerance range.
A financial variance of more than ±10% between forecast and actual metrics shall trigger a joint review meeting to evaluate causes and required actions.
Clause with trailing twelve-month (TTM) metric reporting
Uses trailing performance figures.
All revenue and EBITDA figures shall be reported using a trailing twelve-month basis to provide a consistent performance view.
Clause with financial dependency disclosure
Clarifies reliance on specific revenue sources.
[Party A] shall disclose any single revenue source that accounts for more than 25% of total revenue in any quarter and report associated risks.
Clause with normalized revenue reporting
Removes anomalies from calculations.
All reported revenue figures shall exclude one-time sales, rebates, or non-recurring income to reflect normalized recurring revenue performance.
Clause with profitability-based renewal trigger
Ties contract renewal to financial performance.
This agreement shall only be eligible for renewal if [Party A] achieves a minimum net profit margin of 12% in the final contract year.
Clause with seasonality adjustment
Smooths seasonal effects.
Financial metrics shall be seasonally adjusted using historical performance data to account for cyclical fluctuations in revenue and costs.
Clause with fixed revenue floor requirement
Requires a minimum revenue level.
[Party A] shall maintain a minimum quarterly revenue of $[X]. Failure to meet this floor for two consecutive quarters shall permit renegotiation of commercial terms.
Clause with equity-based metric reporting
Relevant in investment or joint venture contexts.
Where applicable, [Party A] shall provide equity-adjusted financial metrics, including share of profits and loss based on ownership interest.
Clause with growth trigger payment
Creates bonus based on reaching a growth rate.
If revenue grows by 20% or more compared to the prior year, a one-time payment of $[X] shall be made to [Party B] within 30 days of fiscal year-end.
Clause with minimum working capital covenant
Used in supply or distribution agreements.
[Party A] shall maintain minimum working capital of $[X] throughout the term of this agreement. Breach of this covenant shall constitute a material default.
Clause with revenue recognition method clarity
Defines how revenue is recognized.
Revenue shall be recognized on an accrual basis in accordance with GAAP. Deferred revenue shall not be included in gross revenue reporting until earned.
Clause with revenue allocation by product line
Breaks down revenue reporting by offering.
[Party A] shall report revenue segmented by product line or service category, as outlined in Schedule B. Each segment shall include gross sales, net revenue, and cost of goods sold for the reporting period.
Clause with profitability-based service escalation
Ties performance level to business profitability.
If [Party A]'s gross profit exceeds $[X] in any calendar quarter, [Party B] shall escalate service availability by an additional [Y] hours per week without additional cost, effective in the following quarter.
Clause with net revenue definition clarification
Clarifies deductions from revenue for clean reporting.
Net revenue shall mean gross revenue less returns, discounts, rebates, taxes, and third-party transaction fees, unless otherwise specified in writing by both parties.
Clause with quarterly cash flow reporting requirement
Tracks liquidity, not just income.
[Party A] shall provide quarterly cash flow statements including operational, financing, and investing activities within 30 days of each quarter-end.
Clause with EBITDA margin band trigger
Links actions to margin range outcomes.
If quarterly EBITDA margin falls below 10% or rises above 30%, the parties shall review cost allocation and pricing mechanisms within 15 business days.
Clause with revenue retention tracking
Monitors customer revenue continuity.
[Party A] shall report gross revenue retention and net revenue retention figures quarterly, including churn rate and upsell impact on retained accounts.
Clause with financial ratio reporting schedule
Outlines specific ratio disclosure cadence.
The reporting party shall submit debt-to-equity, current ratio, quick ratio, and return on equity metrics biannually, certified by its finance team.
Clause with one-time fee tied to revenue trigger
Implements one-off payments based on growth.
Upon reaching cumulative revenue of $[X], [Party A] shall pay a one-time milestone fee of $[Y] to [Party B], payable within 10 business days of target confirmation.
Clause with variable discount based on revenue scale
Adds incentive pricing tied to volume.
[Party B]'s service fees shall be discounted based on [Party A]'s revenue band: < $1M = no discount, $1M–$5M = 10%, $5M+ = 20%. Adjustments take effect annually.
Clause with profitability-linked exclusivity
Ties exclusivity to financial strength.
[Party A] shall retain exclusivity rights under this agreement only if it maintains a net profit margin above 15% for two consecutive quarters. Falling below shall trigger a renegotiation of exclusivity terms.
Clause with account-level financial metric disclosure
Requires granular client-level data.
[Party A] shall provide account-level revenue, contribution margin, and retention data for top 10 customers quarterly to enable business performance tracking.
Clause with budget deviation tolerance
Defines how far results can deviate from forecast.
Actual financial performance may not deviate by more than 15% from the agreed budget per quarter. Material variance shall require justification and approval from both parties.
Clause with dual metric condition for payout
Combines two metrics as payout criteria.
Performance-based payments shall be released only if both revenue exceeds $[X] and EBITDA margin is above [Y]% for the measurement period.
Clause with pricing tied to cost-to-revenue ratio
Incentivizes cost efficiency.
[Party B]'s pricing shall be reduced by 5% if [Party A]'s cost-to-revenue ratio exceeds 75% in two consecutive quarters.
Clause with quarterly financial narrative report
Requires qualitative context.
[Party A] shall accompany each financial report with a written narrative explaining changes in revenue, margin drivers, expense increases, and forecast outlook.
Clause with audited metric fallback
Protects against disputed unaudited data.
If unaudited financial metrics are disputed by either party, the most recent audited financials shall serve as the default reference for performance calculations.
Clause with shortfall penalty
Introduces consequences for underperformance.
If [Party A]'s quarterly revenue falls below $[X], a shortfall penalty of $[Y] shall be applied as a credit to [Party B]'s future invoices.
Clause with multi-tier performance bonus
Sets structured incentive levels.
Annual performance bonuses shall be paid to [Party B] as follows: 10% bonus at $1M EBITDA, 15% bonus at $2M, 20% bonus at $3M+. Bonuses shall be cumulative and payable within 30 days of fiscal year-end.
Clause with percentage-of-revenue allocation
Sets flat share percentage.
[Party B] shall receive 3% of total net revenue generated under this agreement each quarter, paid within 15 days of quarter-end.
Clause with cumulative metric tracking
Monitors total performance over time.
Cumulative revenue and gross margin shall be tracked from the agreement start date, with quarterly reporting. Adjustments based on cumulative results shall apply annually.
Clause with trailing revenue band adjustments
Links pricing to previous quarter’s performance.
[Party B]'s pricing tier shall adjust each quarter based on [Party A]'s trailing revenue band, using the most recently submitted quarterly report.
Clause with forward revenue commitment
Locks in future targets.
[Party A] commits to achieving a minimum revenue target of $[X] by [DATE]. Failure to meet this target shall permit [Party B] to terminate this agreement with 30 days’ notice.
Clause with standard deviation threshold monitoring
Detects volatility in performance.
Standard deviation of quarterly revenue shall be tracked. If volatility exceeds [X]% over four quarters, a financial strategy review meeting shall be scheduled.
Clause with revenue attribution requirement
Clarifies how to credit revenue sources.
[Party A] shall identify all revenue attributable to activities performed by [Party B] under this agreement, using a mutually agreed attribution model documented in Schedule C.
Clause with fixed-to-variable revenue ratio benchmark
Monitors revenue stream health.
[Party A] shall maintain a fixed-to-variable revenue ratio no lower than 1:3 to ensure financial sustainability. If ratio is not maintained for two quarters, remedial steps shall be jointly developed.
Clause with quarterly revenue deceleration notice
Tracks slowdown patterns.
If quarter-over-quarter revenue growth decelerates for two consecutive quarters, [Party A] must notify [Party B] and propose mitigation actions.
Clause with operating expense cap tied to revenue
Controls expense scale.
Total operating expenses shall not exceed 70% of revenue in any given quarter. Breach of this cap for two consecutive quarters triggers a joint budget review.
Clause with bonus accelerator for stretch targets
Incentivizes overperformance.
If annual revenue exceeds $[X] by 15% or more, [Party B] shall receive an additional accelerator bonus of 10% of the excess revenue.
Clause with working capital utilization ratio monitoring
Focuses on efficiency.
[Party A] shall report quarterly working capital utilization ratio. A consistent ratio above 90% for three quarters triggers a financial process optimization review.
Clause with adjusted gross income benchmark
Normalizes figures for fair evaluation.
Gross income shall be adjusted for non-core activities to reflect contract performance more accurately, and such adjustments must be agreed jointly in writing.
Clause with rolling performance recalibration
Dynamically updates targets.
Financial performance targets shall be recalibrated every six months based on rolling three-quarter averages, with new targets documented by mutual consent.
Clause with spend-to-revenue cap enforcement
Prevents runaway costs.
Marketing and operational spend shall not exceed 40% of quarterly revenue. Any exceptions must be pre-approved by both parties in writing.
Clause with operating margin split provision
Creates profit-sharing mechanism.
If operating margin exceeds 25% in any quarter, [Party B] shall be entitled to 10% of the excess margin amount as a bonus, payable within 15 business days.
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